New York state has reached a $14 million settlement with Assurant Inc., a force-placed insurer.
The state announced the settlement last week, which came after an investigation by the Department of Financial Services (DFS). Besides the penalty, Assurant must make restitutions to harmed homeowners and reform itself.
Force-placed insurance is insurance taken out by a bank, lender, or mortgage servicer when a borrower does not maintain the insurance required by the terms of the mortgage. This can occur if the homeowner allows their policy to lapse, if the bank or mortgage servicer determines that the borrower does not have a sufficient amount of coverage, or if the homeowner is force-placed erroneously.
In October 2011, the DFS launched an investigation of the force-placed insurance industry, which included Assurant and its subsidiaries. The DFS found that the premiums charged to homeowners for force-placed insurance can be two to 10 times higher than premiums for voluntary insurance – despite the fact that force-placed insurance provides far less protection for homeowners than voluntary insurance.
Assurant pushed up the price of insurance by creating incentives for banks and mortgage service companies to buy insurance by offering them a share of the profits. As part of the settlement, every three years, Assurant is required to re-file its rates with the DFS for review.
Refunds will be provided to consumers through a claims process and a third-party administrator selected by the DFS and paid for by Assurant for homeowners who have been force-placed at any time after Jan. 1, 2008.
